Equity Rally Helped Pension Funding in April

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained level at 83% funded status in April, as a decrease in discount rates was offset by positive equity markets, according to Mercer.

As of April 30, the estimated aggregate deficit of $392 billion represents an increase of $1 billion as compared to the deficit measured at the end of March. The aggregate deficit is down $16 billion from the $408 billion measured at the end of 2016.

“April was another month in which funded status failed to improve despite rising equity markets,” says Matt McDaniel, a partner in Mercer’s Wealth Business. “Falling interest rates have now given back most of the ground they gained following the election. Sponsors who were hoping that recent rate increases signaled a long term trend should re-evaluate their plans for dealing with a prolonged low-rate environment. Recent rate movements could also make lump sum exercises look more attractive in 2017.”

Legal & General Investment Management America (LGIMA) estimates that pension funding ratios decreased 0.2% over the month of April, with modest losses driven mainly by a fall in the Treasury rate offsetting the gains in the global equity markets. LGIMA estimates plan discount rates fell 9 basis points, as Treasury rates fell by 8 basis points and credit spreads tightened by about 1 basis point. Overall, liabilities for the average plan were up 1.47%, while plan assets with a traditional “60/40” asset allocation increased by 1.27%.

However, LGIMA says the rally in equities has positively affected pension funding ratios over the month.